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25.12.2014 08:08 How Russia can recover from its economic and strategic decline?

As 2014 began, few in Russia could have imagined how far its fortunes would fall by year`s end. Russia is entering strategic decline. It has options for recovery, but as yet shows little sign of exercising them. This year Russia saw setbacks on three main fronts: economics, political and social, and foreign policy. A severe financial crisis has hit Russia, and next year its economy may slide into a deep and persistent recession. Oil prices have plunged by about two-fifths, yet Russia depends on oil and gas exports for the majority of its state budget. Stock prices relative to earnings are the lowest of any emerging market. Western sanctions in response to aggression in eastern Ukraine have cut off most financing from the West, yet Russians must repay or roll over $150 billion in loans by the end of 2015. These factors and the temporary detention of a well-known business leader have frightened investors. Further, corruption and state economic interference stifle private initiative, and bloated state enterprises such as Rosneft are subsidized. Without major changes, the economy will not recover in anything like the two years President Vladimir Putin predicted last week. He offered no strategy for recovery. Instead, he is avoiding liberalizing reforms and hoping that oil prices will rise and reserve funds will see Russia through.

24.12.2014 14:42 Hello 2015: Russian equities – time to buy?

Russian asset prices have taken a severe battering this year and are now ranked as among the cheapest in the world. The obvious question many are now asking is, “is this a good time to buy” or “is there more pain to come” which might lead to even lower prices and valuations in 2015? Apart from the cheap valuations, the reason why investors are asking that question now is because, during Russia`s previous two recent crises, in 1998/99 and 2008/09, we had similar situations where the reasons to continue avoiding the country were overwhelming but it was, nevertheless, exactly the right time to buy. In October 1998 the RTS Index hit a low of 38.5 and then rose to a peak of 2,500 in May 2008. In late January 2009 the Index closed at just under 500 but three months later it reached 1,000. Recently the RTS Index reached 700, at which level it was down 50 per cent since the start of the year while the MSCI Emerging Markets Index was just about flat. So, is this a third opportunity or is it different this time?

23.12.2014 13:42 Why Russia`s crisis could have a ripple effect?

The "western world" could not have designed a better package of sanctions to put pressure on Russia. The combination of sanctions (perhaps there are more to come) and declining oil prices has had a significant impact on Russia. As one quite respected economics consulting group has put it, "There is now little doubt that Russia is heading for a deep recession."
There can be also little question that Russia depends on oil. We learned that vividly in 1998 when the price of oil declined 58 percent, Russian oil exports declined and, in time, Russia was unable to make payments on its sovereign debt.
Conditions have not changed. Exports constitute 28 percent of Russia`s nominal GDP; oil exports equal 39 percent of its total exports. A decline in the price of oil from $108.66 (the 2013 average price for Brent crude) to $60 (the current price) along with sanctions minimally has caused the economy of Russia to slow. This is not something that has happened overnight. The consensus forecast for the Russian economy for 2015 has been declining each month since January this year from 3.0 percent to -0.2 percent and is likely to decline further.
Based upon the experience of 1997, Russia is pulling out all stops. It has raised interest rates and is on the edge of considering restrictions on capital flows. The ruble and the economy are sinking rapidly.
The real question is "Will the crisis in Russia be transmitted to Europe and perhaps the U.S.?"

A buoyant US economy will drive global growth in the coming years while recovery continues to falter in the eurozone, Japan and many large emerging markets, Fitch said and added that the overall outlook has marginally weakened since September`s Global Economic Outlook (GEO) and risks remain skewed to the downside. "Compared with the September GEO the forecasts are 0.1pp lower for 2015 and 2016, mainly due to emerging markets," the rating agency said in a press release on 8 December. Fitch`s latest forecasts for world GDP growth, weighted at market exchange rates, are 2.5% in 2014, the same as in 2013, picking up to 2.9% in 2015 and 3% in 2016. According to Fitch, the gap between headline and core inflation will widen globally in the near-term as lower energy prices increase downward pressures on headline inflation rates. The rating agency said lower oil prices will boost global growth. It has cut its forecast for Brent oil prices to $100/b in 2014, $83/b in 2015 and $90/b in 2016, following the sharp drop in recent months and OPEC`s failure to take action to reverse it. "We expect prices to rise from current levels as demand picks up, in line with our assumption of stronger global GDP growth in 2015 and 2016, and lower production," the Fitch statement said. "A 20% fall in oil prices will boost the level of global GDP by around 0.3% over two years, but will create big losers as well as winners."

19.12.2014 14:55 Real estate market in Turkey expected to be healthy in 2015

Rising foreign demand, record levels of tourism and healthy economic conditions throughout 2014 mean Turkey should expect further growth in its real estate market in 2015. House sales to foreigners in the first 10 months of 2014 increased 66% year on year to reach 15,417, according to the Turkish Statistical Agency (TurkStat). The province with the most foreign buyers between January and October was Antalya, home to the city of Antalya, as well as the resorts of Kalkan, Belek, Side and Alanya. Istanbul had the second highest number of non-Turkish buyers. Property prices have shown steady increases during 2014, with Turkey recording the highest house price growth of all G20 member countries between the second quarter of 2013 and the second quarter of 2014, up by 14%, according to an index by international property consultants Knight Frank. Meanwhile, Turkey`s Reidin-GYODER New House Price index recorded a month on month rise of 1.33% in October and 7.3% rise compared with the same month last year. Revenue generated by tourism in Turkey hit a new record for the January to September period this year, generating $26.6 billion, according to TurkStat. The country welcomed more than 30 million visitors during this period, a 6.1% increase over the same period last year. These figures would suggest the country is on course to receiving 43 million tourists for the whole of 2014, hitting its revenue target of $36 billion, according to a forecast made by the Association of Turkish Travel Agencies. The IMF predicts GDP growth of 3% for 2014 after analysis done in September, while the European Economic Forecast published in November forecasts growth of 3.3% in 2015 and 3.7% by 2016.

18.12.2014 16:12 Russia economy: What is the risk of meltdown?

Russia`s Central Bank has raised interest rates to 17%, but the rouble has continued to plummet, prompting fears of economic crisis. Russians are reminded of the dark days of 1998, when President Boris Yeltsin`s government defaulted on its debt. But how severe are the problems and is there a way out? What has gone wrong? Russia relies on oil and gas for half its tax revenue and needs the price of a barrel to be at $100 to balance its books. Instead, the price is closer to $60. The value of the rouble has plummeted pretty much in tandem, leading to a sense of panic in the markets. Even before Russia`s annexation of Crimea from Ukraine, Russia`s economy was in trouble. But then came Western sanctions - and Russia`s counter sanctions - which have made things worse.

The U.S. economy, helped by a stronger job market and falling oil prices, should enjoy the fastest economic growth in a decade next year, according to a panel of top business economists. The National Association for Business Economics said it expects the overall economy, as measured by the gross domestic product, to expand by 3.1 percent next year. That would be the strongest GDP growth since 2005 when the economy grew 3.3 percent. The 2007-2009 recession was the worst downturn since the 1930s, and the economy has struggled to regain its footing. The U.S. has been stuck with sub-par growth averaging 2.2 percent per year. The NABE forecasters believe growth this year will average an anemic 2.2 percent, matching last year`s performance. But the NABE forecasting panel, composed of 48 economists, believes growth will finally move into higher gear next year, reflecting continued job gains and a boost in consumer spending linked to the recent big drop in energy prices. The 3.1 percent forecast for 2015 is up slightly from a 3 percent projection the NABE panel made in September.

17.12.2014 16:21 Eurozone GDP growth set to pick up in 2015

Economic growth in the eurozone should speed up, significantly next year, but authorities are effectively running on empty regarding defences to any future downturns, a new report has warned. In its latest outlook on the eurozone region, professional services giant EY (formerly Ernst & Young) has said it expects the single-currency economy to see GDP growth of 1.2% in 2015, picking up from a more modest 0.8% increase this year. It anticipates the region`s economy will rise by 1.6% per annum from 2016 to 2018, inclusive. “The lagged effect of a weakening euro, easing fiscal austerity, lower oil prices and more certainty in the banking sector will combine to support the gradually strengthening eurozone recovery,” the report states. The eurozone will also, EY claims, see export growth in the region of 3.7% in 2015 (up from around 3.4% for this year) and slightly higher, at 4%, for the following three years. This is because the US and UK economies will continue to recover and the weaker euro offers more relief to less competitive member states. Even though EY sees stronger growth ahead for the eurozone, it sees only modest unemployment declines and a slower recovery than in previous rebounds. The company is concerned about the ability to tackle any further downturns. “Policymakers have much-diminished weaponry to tackle any further shocks. With eight eurozone member states` public debt above 90% of GDP, and six of these above 100%, governments have minimal room for fiscal stimulus. And, in the event that inflation fails to pick up as fast as anticipated in the coming years, it is unclear whether a large-scale sovereign bond purchase programme would be as powerful as it might have been a year or two ago,” the report states. According to EY, the pace of eurozone economic growth from 2016 to the end of 2018 will be more than half a percentage point slower than in the decade up to 2007, when GDP growth averaged 2.3% a year in the bloc.

The Russian central bank early Tuesday announced a dramatic hike of its key interest rate from 10.5 to 17 percent after the ruble plunged to a fresh record low. "This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks," the central bank said in a statement posted on its website around 1:00 am local time (2200 GMT Monday). The ruble on Monday suffered a mini-crash, falling by 9.5 percent in a single day despite repeated interventions by the central bank, with the latest apparently taking effect on Monday afternoon. The slide came as the bank warned the low oil price could trigger a contraction of nearly five percent next year and as tensions surged with the United States over the Ukraine crisis. A dramatically higher interest rate -- which was set at 5.5 percent at the beginning of the year -- now threatens to further strangle the economy. The ruble broke through the level of 64 to the dollar and 78 to the euro for the first time even though the Bank of Russia has already spent about $6 billion (4.8 billion euros) so far this month to slow the currency`s slide. Russian news agencies said the ruble briefly jumped from 61 back to 60 on the dollar at around 1300 GMT, possibly due to the latest central bank intervention, but it did not stop a further slump. Having lost over 50 percent of its value against the dollar this year, the ruble`s slide is now worse than the 48 percent of the hryvnia in Ukraine, which is fighting a war and is on the brink of bankruptcy.

16.12.2014 14:57 Japan`s GDP Worse Than Initially Reported

Japan`s economy shrank more than previously estimated in the third quarter, contracting 1.9% as capital spending declined and private consumption remained weak, the government said. Last month, the government estimated that gross domestic product contracted 1.6% during the July-September period. Soon after, Mr. Abe cited the weak economy in saying he would delay a second increase in the nation`s sales tax. In recent days, though, many economists had predicted that the third-quarter contraction would actually turn out to be smaller than initially estimated - or perhaps be revised to flat or a slight expansion - after the Ministry of Finance reported late last month that capital spending by businesses rose 3.1% during the quarter, compared with a previous estimate of a 0.2% decline. Business investment accounts for around 14% of GDP. But capital spending turned out to be weaker than the ministry`s estimate when taking into account smaller businesses, declining 0.4%, indicating that even as Japan Inc. reports record profits and the stock market hits multiyear highs, the benefits of “Abenomics” haven`t reached everyone. The economy will likely expand in the fourth quarter, helped by a sharp decline in oil prices, said Kenji Yumoto, an economist with the Japan Research Institute. Still, consumers` wages aren`t keeping pace with inflation, he noted. “Declining real income amid a weaker yen suggests the recovery will likely lack strength,” he said.